How to Record a Sales Journal Entry with Examples

If you have accounting software or a bookkeeper, you may not be making these entries yourself. But knowing how entries for sales transactions work helps you make sense of your general journal and understand how cash flows in and out of your business. To record a returned item, you’ll use the sales returns and allowances account. This account is for deductions from revenue that result from returns or allowances. This means that when you debit the sales returns and sales entry in accounting allowances account, that amount gets subtracted from your gross revenue.

1. For cash sales, the Cash account is used, while credit sales involve the Accounts Receivable account.
2. These examples illustrate how sales transactions, whether in cash or on credit, are recorded in the company’s journal.
3. Credit sales refer to a sale in which the amount owed will be paid at a later date.
4. Your end debit balance should equal your end credit balance.
5. However, the debit to the sales returns and allowances account ultimately subtracts $10 from your revenue, showing that you actually only earned $40 for the shirt.
6. There are also accounts that have to do with liabilities that must be modified.

Financial Statements for Sole Traders

A sales journal entry is the same as a revenue journal entry. Accounting records of sales and purchases are the heartbeat of any business, providing crucial insights into its financial health and operational efficiency. Imagine them as the intricate threads weaving through the fabric of a company’s financial landscape, capturing every transaction, big or small, with precision and clarity. The business acts as a collection agency for the government by charging the sales tax.

The credit entry increases the Sales Revenue, indicating the earning of income. To create the sales journal entry, debit your Accounts Receivable account for $240 and credit your Revenue account for $240. For locations with sales taxes, you also need to record the sales tax that your customer paid so you know how much to pay the government later. Creating journal entries for each of your sales is an essential bookkeeping skill. You’ll need to use multiple accounts to show that you received money, your revenue increased, and your inventory value decreased because of the sale.

1. Tina balances this by making credit entries in Dave’s account totalling $550.
2. This transaction reflects the increase in assets (cash or accounts receivable) and revenue for the business.
3. IBO was not involved in the production of, and does not endorse, the resources created by Save My Exams.
4. Your customer must pay you $5 ($100 X 0.05) in sales tax.
5. On January 30, 2018, John made the full payment of $10,000 for the computers and laptops.

Apple Inc is a laptop and computer dealer, and it sold goods to John Electronics on January 1, 2018, worth $50,000 on credit. It means John Electronics must make the payment on or before January 30, 2018. It helps record the transaction involving the sale of goods on credit by the company appropriately, keeping track of every credit sale involved. Tina records this by crediting the bank account and debiting Dale’s account. In addition to software, a print sales journal can also be used.

How to Record a Sales Journal Entry with Examples

In total, collect $5,250 ($5,000 + $250) from your customer. Record both your sales revenue of $5,000 and your sales tax liability of $250 in your accounting books. When you collect sales tax from customers, you increase the corresponding liability account, which is your Sales Tax Payable account. And because you collect the sales tax, you also must increase your Cash account. On 15 January, Dale forgets about the cash discount and sends Tina a cheque for $500. Dale is still entitled to the discount so Tina debits $50 to the discount allowed account.

Payments from Credit Customers

The accounts receivable account is debited to indicate that ABC Electronics has sold the desktop computers and is expecting to receive $6,000 from customers. This reflects an increase in assets (accounts receivable). The sales revenue account is credited to show the income earned from the sale, which increases the company’s equity. These examples illustrate how sales transactions, whether in cash or on credit, are recorded in the company’s journal.

Credit sales boost the buyer’s inventory and also give them enough time to sell the product and repay their supplier. This credit period is usually decided well in advance and can vary from industry to industry. Default on the due date can also lead to penalties or legal proceedings against the defaulter. Alex returns $100 worth of goods to a business on 4 January 2024. A business allows Alex a 10% cash discount when they repay their $400 invoice early on 4 January 2024 via bank transfer.

Check with the state you’re selling goods or services to, to understand how they define nexus for out of state sellers. For example, Ohio requires that out of state sellers who have at least 200 transactions or $100,000 in gross sales collect sales tax, even if they have no physical presence in the state. When you remit the sales tax to the government, you can reverse your initial journal entry.

Depreciation & Disposal of Non-Current Assets

Goods are denoted as ‘Purchases A/c’ when goods are purchased and ‘Sales A/c’ when they are sold. If you’re interested in diving deeper into the world of double-entry accounting, check out my free Alison course here to enhance your understanding and mastery of this fundamental concept. CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.

You should understand accounting for sales tax to maintain organized and accurate records. A business sells $500 worth of goods to Alex on credit on 1 January 2024. When goods are involved in a sale, other entries in accounts must be made in addition to those listed above. These additional accounts include cost of goods sold and inventory. Realistically, the transaction total won’t all be revenue for your business.

Tina records this by debiting Dave’s account and crediting the sales account. This guide serves as a foundational resource for understanding and implementing the journal entry process for sales revenue, a cornerstone of financial reporting and analysis. In instances where goods are returned or allowances are made, the Sales Returns and Allowances account, a contra-revenue account, is used to adjust the sales revenue. From an accounting standpoint, sales do not occur until the product is delivered.

In the above example, Apple Inc is offering a 10% discount if John Electronics makes the payment on or before January 10, 2018. Accordingly, John Electronics made the payment on January 10, 2018. The idea behind this is related to getting rid of on-hand inventory. When you sell it, you reduce the liabilities you have with inventory. However, it also increases the total cost of goods sold for your business. Without creating an update to accounts, your general ledger will be off.